Dillard’s investment presents an opportunity. This post is different from a “focus investment” which is a much more in-depth analysis and suitable for longer-term investment. See the post on Guess (GES) with the attached PDF for a “focus investment” selection (we still like Guess btw). This trade idea is an observation on a market dislocation. Dillard’s (DDS) is down 17.5% on not beating expectations. The results at Dillard’s were not fundamentally bad. EPS were up from $0.10 last year to $0.32 this year (adjusted EPS). Same store sales trends remain healthy (+6% for Q2) and margins are expanding. The key quarter for full year earnings is Q4 – so you have to believe we won’t be in recession by the holidays. But if you believe we avoid recession, Dillard’s...

European banks, the cause of yesterday’s collapse, all rallied today. CDS spreads in Europe narrowed across the board, French and Italian sovereign debt rallied, and Gold sold off 41 dollars (down 2.3%). Earnings continue to meet low expectation (Kohl’s, Cisco). The BOVESPA rallied sharply, and the VIX declined all day. After an exhausting first 4-days of the week we have: 2-2 (in terms of terrifying market collapses vs euphoric booms). Again, this is just this week. If you need some water to mix with your alcohol IV, you aren’t alone. Rubber match on Friday.

Markets are on edge. This type of volatility is wrenching. It weighs on professional investors, it interjects more emotion into the investment process, while elevating stress, and causing people to lose sleep. The above is natural as money is made or lost at an outsized pace in hourly timeframes. This phenomena is measured by the VIX index which has surged to over 40 this week (was 15-25 the majority of the past couple of years). When you are stressed, tired, and emotional, you don’t think or research as clearly. Things get missed. There was some subtle news in the past week about August 10th being a key date for the People’s Bank of China with respect to making a decision on rate hikes. Stories were out last week from Xinhua...

Rumors are swirling that France is about to be downgraded by Standard & Poor’s. We do not believe France should be downgraded, unless every nation that is rated “AAA” changed to “AA” on Standard & Poor’s definition of “AA”. No country should have a higher sovereign credit rating than the US. No other nation has the world’s reserve currency or largest military – therefore they are riskier. If the market sells off on any news related to France, it’s an opportunity to buy. French Government bonds are 3.10%. German Government bonds are 2.11% Italian Government bond are 5.10% (down sharply from last week) Spanish Government bonds are 5.01% (down sharply from last week) What the S&P says about any other countries in the world really doesn’t matter in our view. The entire...

Why was the market up 5% yesterday after the Fed meeting? At first the market sold off 2%. Subsequently, the market came back to unchanged and rallied another 5%. Whoa. Our “green light” to buy worked out, if just for a day. Of course what everyone cares about is what to do going forward. We remain skeptical of a market crash based on something as mundane as a Fed statement on the economy or a Standard & Poor’s statement on the credit worthiness of the US. These are absurd reasons for a market crash though we remain vigilant of real reasons for a market crash. 1) Credit availability and liquidity really drying up across the global economy 2) An actual recession – there have been enough fears of one, and...

The markets are completely destabilized and due for a bounce from dramatically oversold conditions. For those investors who are bullish and wish to take the view that the US and global economy will not be in a recession in the next 6-9 months, we advocate buying while the buying is good and other investors are worried about an utter meltdown. Based on the lead-in to today, acknowledging the destabilized market environment, we would see a 2/3 chance of a very strong bounce that gains some momentum when the investing heard gets over the shock of an up-market. Of course there is a solid 1/3 chance that confidence remains completely dashed and we again have another heavy selloff. Why we are leaning towards a bounce… CSFB’s Global Risk Appetite Index...

The Chinese CPI is not an apples-to-apples measure relative to the CPI (consumer price index) that is reported here in the US. Some are attributing the overnight leg-down in the S&P futures (down another 24 or 2.25% at 11:00pm) to the fact that Chinese inflation came in at 6.5% when the consensus was 6.4%. Crackerjack says: “bullocks”. This is just some more good old fashion market panic in our opinion. Chinese food inflation came in at +14.8%. Certainly high, but food inflation is much more volatile and both weather, crop, and commodity price dependent (notice how all commodities except for gold have been collapsing the past few days). Chinese inflation ex-food is running up 2.9%. Not too much different than inflation in the US, nor should it be with...

The immediate observation for those watching this macabre sell-off is that stocks are pretty much being sold off based upon how they would be expected to hold-up in a recession, that will presumably be starting within the next 6-months or so. Any stocks that have a very high valuation, are particularly leveraged, are pro-cyclical or are discretionary look out! Stocks in these categories are down indiscriminately, regardless of near-term or current business trends. The market is being forward looking and pricing in a much higher probability of a recession on the horizon. There is no way to prove or dis-prove the recession prediction until more time goes by. Some stocks of note at 3:00PM: Goldman Sachs (GS) – (down 9%) Coach (COH) – (down 11%) Sears (SHLD) –...

Well, the market clearly isn’t looking for the light at the end of the tunnel. Italian 10-YR bonds have surged, rallying 80 basis points (from a 6.09% yield on Friday to 5.29% yield today). Spanish 10-YR bonds have also surged, rallying 88 basis points (from a 6.03% yield on Friday to a 5.14% yield today). While we think this was the more important event over the weekend into Monday morning. The market is clearly on edge regarding the unintended consequence of the Standard & Poor’s sovereign debt downgrade. Standard & Poor’s also downgraded both Fannie Mae and Freddie Mac based on dependence on the US Government. A number of insurance companies and municipal bond issues will also be downgraded. If the US sovereign rating is not AAA, than nothing...

The downgrade of the US sovereign credit rating is sure to cause continued jitters in the financial markets on Monday morning. In actuality, there may be net-positive developments this weekend as it now appears clear that the ECB will engage in buying the debt of Italy and Spain. Drawing a “line-in-the-sand” for Italy and Spain is one of the key elements of halting a financial crisis redux in its tracks. The Standard & Poor’s downgrade of the US sovereign credit rating looks to be timed to create maximum stir and hints at some political motivations. The downgrade was firmly signaled on July 14th when the US was put on credit watch. Standard & Poor’s looked for $4T in spending cuts to be announced in conjunction with the raising of the...

Crackerjack continues to hold the view, that what transpired in the markets is a crisis of confidence, more so than an actual crisis. There is a big and important difference. During the real-deal 2008-2009 economic crisis you had actual insolvent institutions as the value of mortgage securities declined when the US housing market imploded. The sovereign debt crisis in Europe is also a real crisis as it relates to Greece, Portugal, and Ireland (these countries can never pay back what they borrowed) but these economies aren’t big enough to tip the world into a global recession. While Spain and Italy have numerous longer-term structural issues which need to be addressed, these nations have ample ability to pay their actual agreed upon debts so long as the interest costs are manageable. Italian...

It goes without saying, that the DOW dropping 500 points, and the S&P 500 losing close to 5% will put enormous pressure on Europe tomorrow morning. We will be watching Spanish and Italian bond yields and European stock markets very closely in the wee hours of the morning. The Non-farm payrolls report is a side-show with the real issue near-term being “how to avoid a crisis”.

Fears of a Crisis Grow Interesting market reactions this morning. While many market participants are clearly being terrorized by a crisis of confidence (and this is always a risk) there look to be some genuinely better pieces of information. Markets are selling off based on rhetoric from the ECB. As we discussed yesterday, the ECB needs to talk big to instill confidence that bond markets in Spain and Italy are not on the cusp of spiraling out of control. Jean-Claude Trichet, the ECB President, mentioned the ability to buy bonds (even today). At first this caused a rally, but the rally in Italian 10-YR yields quickly reversed. Italian 10-YR yields closed the day at a 6.21% yield (up 12 bps) after being below 6.0% at one point in the morning....

Click Here for Formatted Europe PDF “I think we need a bigger boat!” The words of Martin Brody, played by the late Roy Scheider, ring true today with regard to Europe’s spluttering attempt to avoid a sovereign debt crisis. Now that the side-show spectacle regarding raising the US debt ceiling (i.e., whether the US would self-immolate) has passed (for the near-term). The issue for the markets relates to two items: 1) The prospects for Europe avoiding a financial crisis 2) The outlook for the US economy It will take time and many more data points to determine whether we are headed for another recession (double dip) within the next 12-months. Crackerjack maintains a baseline view that we will not. The Genesis of this Crisis: The PIGS (an acronym for:...

Guess (GES) is an undervalued global brand. The stock performance has decoupled relative to many other global apparel stocks based on a number of factors such as: fashion, US comparable store sales, exposure to Europe, and management team changes. Negativity looks overblown for investors who have patience and perspective, especially relative to valuations of other apparel brands with global aspirations such as Abercrombie & Fitch, Ralph Lauren, PVH, Coach, and True Religion. The following research will explore why Guess is an investment opportunity now: Here are the reasons why Guess (GES) shares are a buy right now with almost 100% upside to $74 in two years: 1) Organic growth rate is high 2) Fears related to exposure to Italy are overblown 3) China will be a growth driver for...

Crackerjack Finance holds the view that superior investment results come from three areas: knowledge, perspective, and disciplined research. After growing weary of financial websites and blogs that either a) regurgitate headlines or b) scratch the surface with quick-and-easy investment recommendations, Crackerjack was conceptualized in order to provide deeper investment analysis with regard to the broad economy, overall markets, sector themes, geopolitical implications, and company/stock research. Crackerjack believes in an open forum where analysis can be exchanged and stand on its own merit. The idea is to create a forum for passionate investors. Crackerjack believes in anonymity so ideas can be evaluated, shared, and debated freely. All investment ideas will either be from Crackerjack’s founders or from outside submissions that are vetted by Crackerjack. Investors are encouraged to take ownership...